Unless we get back to lending standards that are based in REALITY, rather than social programs, the best thing to do is stay away from REITs, if at all possible (and often it’s not, sadly, as the ‘professionals’ in the investment business seem to love the damn things).
Hilton spun out the real estate to Park Hotels & Resorts back in 2018.
https://en.wikipedia.org/wiki/Park_Hotels_%26_Resorts
The hotel business is horizontally structured, with the operators of the hotel, owners of the real estate, and employer of most of the staff being three different companies.
San Francisco = Detroit 2.0
Nearly $1.5 trillion in commercial mortgages are coming due
over the next three years, according to data provider Trepp.
WSJ 6/6/23
Urban high rise hotels support business travel. Business travel is much reduced post-Covid due to the use of Zoom, Teams, GoToMeeting. Similarly, office buildings are in much less demand due to work from home, post-Covid.
And people are surprised REITs based on those assets are not doing well?
Wasn’t it Elon that predicted the US commercial real estate market was about to collapse?..................
Two things going on with the Park and Hotels situation.
The REIT is defaulting on the debt. The debt holders will take the property. It’s non-recourse debt, so P&H just walks away from it.
Since this suggests the the debt is more than the value of the buildings, the debt holders presumably sell the property, and take the loss at the amount the FMV of the property is less than the face amount of the debt. (Plus lawyers and transfer costs in the event of a sale).
So, the debt holders take a loss, but don’t lose everything. In this transaction the REIT and its investors are protected, they just get out of a bad deal.
In the larger scheme of things, this indicates dropping values for real estate. This is where the REITs can lose value.
Almost all office building and shopping center loans are non-recourse, meaning that with a few limited exceptions the owners of the entities owning the properties can walk away free and clear. This is going to be a real problem for banks, insurance companies, pension funds and REITs that have interests in loans on those properties. We have not seen anything yet.